Nuverra Announces Fourth Quarter And Full Year 2017 Results

SCOTTSDALE, Ariz., March 5, 2018 /PRNewswire/ -- Nuverra Environmental Solutions, Inc. (NYSE American: NES) ("Nuverra" or the "Company") today announced financial and operating results for the fourth quarter and full year ended December 31, 2017.

SUMMARY OF FINANCIAL RESULTS

Fourth quarter revenue was $46.4 million, an increase of approximately 29.8%, or $10.6 million, when compared with $35.8 million in the fourth quarter of 2016.

Net loss for the fourth quarter was $30.9 million, a reduction of $30.4 million, or approximately 49.6%, when compared with a net loss of $61.3 million in the fourth quarter of 2016.

Loss from continuing operations, adjusted for special items, for the fourth quarter was $17.3 million, compared with $26.0 million in the fourth quarter of 2016.

Adjusted EBITDA from continuing operations for the fourth quarter was $5.1 million, an increase of $2.6 million compared with $2.5 million in the fourth quarter of 2016.

Fourth quarter Adjusted EBITDA margin improved by 400 basis points.

Total liquidity as of December 31, 2017 was $20.5 million.

"Nuverra was well positioned to capitalize on an improved operating environment in the second half of 2017," said Ed Lang, Chief Financial Officer. "We exited the year with strong financial results, including double digit topline growth and expanding margins. The industry momentum is continuing in 2018 and we are seeing increased drilling activity in all basins which we service. With our attractive asset base and improved liquidity position, we are investing to further improve and grow our business platform and expect to deliver another year of favorable results in 2018."

FOURTH QUARTER 2017 RESULTS

Fourth quarter revenue was $46.4 million, an increase of $10.6 million, or 29.8%, from $35.8 million in the fourth quarter of 2016. Approximately 10.2% of the increase in revenue is attributable to pricing increases, while 19.6% is a result of increases in activities.

As a result of increased activity and a change in depreciation related to the application of fresh start accounting upon emergence from chapter 11, total costs and expenses, adjusted for special items, were $62.3 million, a 29.8% increase compared with $48.0 million in the fourth quarter of 2016.

Net loss for the fourth quarter was $30.9 million, a reduction of $30.4 million when compared with a net loss of $61.3 million in the fourth quarter of 2016. For the fourth quarter of 2017, the Company reported a net loss from continuing operations, adjusted for special items, of $17.3 million. Special items in the fourth quarter primarily included the loss on the sale of underutilized assets, non-recurring legal and professional fees, stock-based compensation expense, as well as $2.5 million in long-lived asset impairment charges for assets held for sale in the Rocky Mountain division. This compares with a loss from continuing operations, adjusted for special items, of $26.0 million in the fourth quarter of 2016.

Adjusted EBITDA from continuing operations for the fourth quarter was $5.1 million, an increase of $2.6 million compared with $2.5 million in the fourth quarter of 2016. Fourth quarter adjusted EBITDA margin from continuing operations was 11.1%, compared with 7.1% in the fourth quarter of 2016.

FULL YEAR 2017 RESULTS

Revenue for the year was $176.1 million, an increase of $23.9 million, or 15.7%, when compared with $152.2 million for 2016. Due to oil prices becoming more stable in 2017, customer demand for our services increased in all divisions in which we operate as compared to the same period in the prior year. Approximately 3.9% of the increase in revenue is attributable to pricing increases, while 11.8% is a result of increases in activities.

As a result of the application of fresh start accounting upon emergence from chapter 11, net income for the full year was $120.7 million, compared to a net loss of $168.9 million in the prior year. Net loss from continuing operations for the year, adjusted for special items, was $79.6 million, compared with a loss of $108.0 million for 2016. Year-to-date special items primarily included $218.0 million of capital reorganization costs incurred in connection with the application of fresh start accounting and after emergence from chapter 11 recorded to "Reorganization items, net." Additionally, special items included the loss on the sale of underutilized assets, stock-based compensation expense, a $4.3 million gain on the change in fair value of the derivative warrant liability, and $4.9 million in long-lived asset impairment charges for assets held for sale in the Rocky Mountain and Southern divisions.

Adjusted EBITDA from continuing operations for the full year was $13.3 million, an increase of 70.0% when compared with 2016. Adjusted EBITDA margin from continuing operations for 2017 was 7.6%, compared with 5.2% in 2016.

CASH FLOW AND LIQUIDITY

Net cash used in operating activities from continuing operations for the full year ended December 31, 2017 was $25.4 million, while asset sales net of capital expenditures from continuing operations provided proceeds of $1.7 million.

Total liquidity as of December 31, 2017, consisting of cash and cash equivalents, available borrowings under our senior secured revolving credit facility and a delayed draw available on our second lien term loan facility, was $20.5 million. As of December 31, 2017, total debt outstanding was $39.1 million, consisting of $14.3 million under our senior secured term loan facility, $21.0 million under our second lien term loan facility, and $3.8 million of capital leases for vehicle financings.

BASIS OF PRESENTATION

As previously disclosed, the Company emerged from chapter 11 bankruptcy on August 7, 2017, or the "Effective Date," and elected to apply fresh start accounting as of July 31, 2017 to coincide with the timing of the normal accounting period close. References to "Successor" relate to the financial position and results of operations of the reorganized Company subsequent to July 31, 2017, while references to "Predecessor" refer to the financial position and results of operations of the Company on and prior to July 31, 2017. The Successor and Predecessor GAAP results for the applicable periods are presented in the tables following this release.

For discussion purposes, the Company has combined the Successor and Predecessor periods to derive combined results for the year ended December 31, 2017. However, because of various adjustments to the condensed consolidated financial statements in connection with the application of fresh start accounting, the results of operations for the Successor period are not comparable to those of the Predecessor period. The Company believes that, subject to consideration of the impact of fresh start accounting, combining the results of the Successor and Predecessor periods provides meaningful information about the financial results of the Company, including revenues and costs that assist a reader in understanding the financial results for the applicable periods.

About Nuverra

Nuverra Environmental Solutions, Inc. is among the largest companies in the United States dedicated to providing comprehensive, full-cycle environmental solutions to customers in the energy market. Nuverra focuses on the delivery, collection, treatment, and disposal of restricted solids, water, wastewater, waste fluids, and hydrocarbons. The Company provides its suite of environmentally compliant and sustainable solutions to customers who demand stricter environmental compliance and accountability from their service providers. Find additional information about Nuverra in documents filed with the U.S. Securities and Exchange Commission ("SEC") at http://www.sec.gov.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the United States Securities Act of 1933, as amended, and Section 21E of the United States Securities Exchange Act of 1934, as amended. You can identify these and other forward-looking statements by the use of words such as "anticipates," "expects," "intends," "plans," "predicts," "believes," "seeks," "estimates," "may," "might," "will," "should," "would," "could," "potential," "future," "continue," "ongoing," "forecast," "project," "target" or similar expressions, and variations or negatives of these words.

These statements relate to our expectations for future events and time periods. All statements other than statements of historical fact are statements that could be deemed to be forward-looking statements, and any forward-looking statements contained herein are based on information available to us as of the date of this press release and our current expectations, forecasts and assumptions, and involve a number of risks and uncertainties. Accordingly, forward-looking statements should not be relied upon as representing our views as of any subsequent date. Future performance cannot be ensured, and actual results may differ materially from those in the forward-looking statements. Some factors that could cause actual results to differ include, among others: the effects of the restructuring on the Company and the interests of various constituents; risks and uncertainties associated with the restructuring process, including the outcome of a pending appeal of the order confirming the plan of reorganization and our ability to execute the requirements of the plan of reorganization subsequent to the Effective Date; our inability to maintain relationships with suppliers, customers, employees and other third parties as a result of our chapter 11 filing; the length of time the Company will operate under chapter 11 protection; risks associated with our indebtedness, including changes to interest rates, deterioration in the value of our machinery and equipment or accounts receivables, our ability to manage our liquidity needs and to comply with covenants under our credit facilities; our ability to attract, motivate and retain key executives and qualified employees in key areas of our business, including as a result of our completed chapter 11 restructuring; financial results that may be volatile and may not reflect historical trends due to, among other things, changes in commodity prices or general market conditions, acquisition and disposition activities, fluctuations in consumer trends, pricing pressures, changes in raw material or labor prices or rates related to our business and changing regulations or political developments in the markets in which we operate; our ability to attract and retain a sufficient number of qualified truck drivers in light of industry-wide driver shortages and high-turnover; the availability of less favorable credit and payment terms due to the downturn in our industry, our financial condition and the chapter 11 proceeding, including more stringent or costly payment terms from our vendors, which may further constrain our liquidity and reduce availability under our revolving credit facility; risks associated with our capital structure, including our ability to access necessary funding to generate sufficient operating cash flow to meet our debt service obligations; risks associated with the limited trading volume of our common stock on the NYSE American Stock Exchange, including fluctuations in the trading prices of our common stock; present and possible future claims, litigation or enforcement actions or investigations and their potential impact; difficulties in identifying, negotiating, executing, and completing acquisitions and divestitures, in connection with our strategic initiatives, and differences in the type and availability of consideration or financing for such acquisitions and divestitures; difficulties in successfully executing our growth initiatives, including difficulties in permitting, financing and constructing pipelines and waste treatment assets and in structuring economically viable agreements with potential customers, joint venture partners, financing sources and other parties; pricing pressures; risks associated with the operation, construction and development of saltwater disposal wells, solids and liquids treatment and transportation assets, landfills and pipelines, including access to additional locations and rights-of-way, environmental remediation obligations, unscheduled delays or inefficiencies and reductions in volume due to micro- and macro-economic factors or the availability of less expensive alternatives; risks associated with new technologies and the impact on our business; current and projected future uncertainties in commodities markets, including low oil and/or natural gas prices, and the potential impact on our ability to collect outstanding receivables as a result of the liquidity constraints on our customers; changes in customer drilling and completion activities and capital expenditure plans; the effects of competition in the markets in which we operate, including the adverse impact of competitive product announcements or new entrants into our markets and transfers of resources by competitors into our markets; shifts in production in shale areas where we operate and/or shale areas where we currently do not have operations; control of costs and expenses; and the regulatory environment.

The forward-looking statements contained, or incorporated by reference, herein are also subject generally to other risks and uncertainties that are described from time to time in the Company's filings with the SEC. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's views as of the date of this press release. The Company undertakes no obligation to update any such forward-looking statements, whether as a result of new information, future events, changes in expectations or otherwise. Additional risks and uncertainties are disclosed from time to time in the Company's filings with the SEC, including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K.

This press release contains non-GAAP financial measures as defined by the rules and regulations of the United States Securities and Exchange Commission. A non-GAAP financial measure is a numerical measure of a company's historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with GAAP in the statements of operations or balance sheets of the Company; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. Reconciliations of these non-GAAP financial measures to their comparable GAAP financial measures are included in the attached financial tables.

These non-GAAP financial measures are provided because management of the Company uses these financial measures in evaluating the Company's ongoing financial results and trends. Management uses this non-GAAP information as an indicator of business results, and evaluates overall performance with respect to such indicators. Management believes that excluding items such as acquisition expenses, amortization of intangible assets, stock-based compensation, asset impairments, restructuring charges, expenses related to litigation and resolution of lawsuits, and other charges, which may or may not be non-recurring, among other items that are inconsistent in amount and frequency (as with acquisition expenses), or determined pursuant to complex formulas that incorporate factors, such as market volatility, that are beyond our control (as with stock-based compensation), for purposes of calculating these non-GAAP financial measures facilitates a more meaningful evaluation of the Company's current operating performance and comparisons to the past and future operating performance. The Company believes that providing non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net income (loss), and adjusted net income (loss) per share, in addition to related GAAP financial measures, provides investors with greater transparency to the information used by the Company's management. These non-GAAP financial measures are not substitutes for measures of performance or liquidity calculated in accordance with GAAP and may not necessarily be indicative of the Company's liquidity or ability to fund cash needs. Not all companies calculate non-GAAP financial measures in the same manner, and our presentation may not be comparable to the presentations of other companies.

For illustrative purposes, the Company has combined the Successor and Predecessor periods to derive combined results for the year ended December 31, 2017 for these non-GAAP reconciliations. The combination was generated by addition of comparable financial statement line item captions. However, because of various adjustments to the condensed consolidated financial statements in connection with the application of fresh start accounting, including asset valuation adjustments and liability adjustments, the results of operations for the Successor period are not comparable to those of the Predecessor period. The financial information preceding these non-GAAP reconciliations provides the Successor and Predecessor GAAP results for the applicable periods. The Company believes that subject to consideration of the impact of fresh start accounting, combining the results of the Successor and Predecessor periods provides meaningful information about the financial results of the Company, including revenues and costs that assist a reader in understanding the financial results for the applicable periods.

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES

NON-GAAP RECONCILIATIONS (continued)

(In thousands)

(Unaudited)

Reconciliation of Loss from Continuing Operations to EBITDA and Total Adjusted EBITDA:

Three Months Ended

Year Ended

December 31,

December 31,

2017

2016

2017 [1]

2016

(Loss) income from continuing operations

$

(30,902)

$

(61,316)

$

120,716

$

(167,621)

Depreciation and amortization

21,230

14,693

67,532

60,763

Interest expense, net

1,409

13,856

24,979

54,530

Income tax (benefit) expense

(381)

(45)

(669)

807

EBITDA

(8,644)

(32,812)

212,558

(51,521)

Adjustments:

Transaction-related costs, including earnout adjustments, net

—

—

—

(117)

Stock-based compensation

496

217

1,134

1,125

Change in fair value of derivative warrant liability

(379)

(737)

(4,264)

(3,311)

Capital reorganization costs [2]

—

4,033

9,448

14,310

Reorganization items, net [3]

6,036

—

(217,987)

—

Legal and environmental costs, net

124

(99)

2,168

3,128

Impairment of long-lived assets

2,500

31,712

4,904

42,164

Restructuring, exit and other costs

—

—

—

(379)

Loss on extinguishment of debt

—

—

—

674

Gain on the sale of UGSI

—

—

(76)

(1,747)

Loss on disposal of assets

5,008

219

5,437

3,512

Total Adjusted EBITDA

$

5,141

$

2,533

$

13,322

$

7,838

[1]

For illustrative purposes, the Company has combined the Successor and Predecessor periods to derive combined results for the year ended December 31, 2017.

Primarily includes the aforementioned adjustments along with long-lived asset impairment charges of $2.5 million for assets classified as held-for-sale in the Rocky Mountain division.

[D]

Primarily includes the aforementioned adjustments along with $6.0 million of capital reorganization costs incurred after the chapter 11 filing recorded to "Reorganization items, net," offset by a gain of $0.4 million associated with the change in fair value of the derivative warrant liability. Additionally, our effective tax rate for the three months ended December 31, 2017 was (1.2)% and has been applied to the special items accordingly.

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES

NON-GAAP RECONCILIATIONS (continued)

(In thousands)

(Unaudited)

Reconciliation of Special Items to Adjusted Loss from Continuing Operations and to EBITDA and Adjusted EBITDA from Continuing Operations

Three months ended December 31, 2016

As Reported

Special Items

As Adjusted

Revenue

$

35,782

$

—

$

35,782

Direct operating expenses

28,602

(218)

[E]

28,384

General and administrative expenses

9,034

(4,152)

[F]

4,882

Total costs and expenses

84,041

(36,082)

[G]

47,959

Loss from operations

(48,259)

36,082

[G]

(12,177)

Loss from continuing operations

(61,316)

35,319

[H]

(25,997)

Loss from continuing operations

$

(61,316)

$

(25,997)

Depreciation and amortization

14,693

14,693

Interest expense, net

13,856

13,856

Income tax benefit

(45)

(19)

EBITDA and Adjusted EBITDA from continuing operations

$

(32,812)

$

2,533

Description of 2016 Special Items:

[E]

Special items primarily includes the loss on sale of underutilized assets.

[F]

Primarily attributable to stock-based compensation, non-routine litigation expenses, non-routine professional fees and $4.0 million for capital reorganization costs incurred for the debt exchange executed in 2016.

[G]

Primarily includes the aforementioned adjustments along with long-lived asset impairment charges of $31.7 million for assets determined to be impaired in the Rocky Mountain division.

[H]

Primarily includes the aforementioned adjustments along with a gain of $0.7 million associated with the change in fair value of the derivative warrant liability. Additionally, our effective tax rate for the three months ended December 31, 2016 was near zero percent and has been applied to the special items accordingly.

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES

NON-GAAP RECONCILIATIONS (continued)

(In thousands)

(Unaudited)

Reconciliation of Special Items to Adjusted Loss from Continuing Operations and to EBITDA and Adjusted EBITDA from Continuing Operations

Year Ended December 31, 2017 [1]

As Reported

Special Items

As Adjusted

Revenue

$

176,071

$

—

$

176,071

Direct operating expenses

148,087

(6,032)

[A]

142,055

General and administrative expenses

33,167

(12,155)

[B]

21,012

Total costs and expenses

253,690

(23,091)

[C]

230,599

Loss from operations

(77,619)

23,091

[C]

(54,528)

Income (loss) from continuing operations

120,716

(200,346)

[D]

(79,630)

Income (loss) from continuing operations

$

120,716

$

(79,630)

Depreciation and amortization

67,532

67,532

Interest expense, net

24,979

24,979

Income tax (benefit) expense

(669)

441

EBITDA and Adjusted EBITDA from continuing operations

$

212,558

$

13,322

[1]

For illustrative purposes, the Company has combined the Successor and Predecessor periods to derive combined results for the year ended December 31, 2017.

Description of 2017 Special Items:

[A]

Special items primarily includes capital re-organization costs incurred prior to the chapter 11 filing and the loss on the sale of underutilized assets.

[B]

Primarily attributable to capital re-organization costs of $8.8 million incurred prior to the chapter 11 filing, as well as stock-based compensation, non-routine litigation expenses and non-routine professional fees.

[C]

Primarily includes the aforementioned adjustments along with long-lived asset impairment charges of $4.9 million for assets classified as held-for-sale primarily in the Rocky Mountain division.

[D]

Primarily includes the aforementioned adjustments along with $218.0 million of capital reorganization costs incurred in connection with the application of fresh start accounting and after emergence from chapter 11 recorded to "Reorganization items, net," offset by a gain of $4.3 million associated with the change in fair value of the derivative warrant liability. Additionally, our effective tax rate for the twelve months ended December 31, 2017 was (0.6)% and has been applied to the special items accordingly.

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES

NON-GAAP RECONCILIATIONS (continued)

(In thousands)

(Unaudited)

Reconciliation of Special Items to Adjusted Loss from Continuing Operations and to EBITDA and Adjusted EBITDA from Continuing Operations

Year Ended December 31, 2016

As Reported

Special Items

As Adjusted

Revenue

$

152,176

$

—

$

152,176

Direct operating expenses

129,624

(5,850)

[E]

123,774

General and administrative expenses

37,013

(15,857)

[F]

21,156

Total costs and expenses

269,564

(63,871)

[G]

205,693

Loss from operations

(117,388)

63,871

[G]

(53,517)

Loss from continuing operations

(167,621)

59,646

[H]

(107,975)

Loss from continuing operations

$

(167,621)

$

(107,975)

Depreciation and amortization

60,763

60,763

Interest expense, net

54,530

54,530

Income tax expense

807

520

EBITDA and Adjusted EBITDA from continuing operations

$

(51,521)

$

7,838

Description of 2016 Special Items:

[E]

Special items primarily includes the loss on sale of underutilized assets and environmental clean-up charges.

[F]

Primarily attributable to stock-based compensation, non-routine legal and professional fees, and capital reorganization costs of $14.3 million incurred for the debt exchange executed in 2016

[G]

Primarily includes the aforementioned adjustments along with long-lived asset impairment charges for assets classified as assets-held-for-sale in the Northeast division of $2.4 million and the Southern division of $2.4 million, as well as impairment charges of $31.7 million for the Rocky Mountain division and $5.7 million for the Northeast division.

[H]

Primarily includes the aforementioned adjustments, along with a charge of $0.7 million in connection with the write-off of a portion of the unamortized deferred financing costs as a result of an amendment to our Predecessor Revolving Facility, a gain of $3.3 million associated with the change in fair value of the derivative warrant liability, and a gain on the sale of Underground Solutions, Inc. for $1.7 million. Additionally, our effective tax rate for the twelve months ended December 31, 2016 was 0.5% and has been applied to the special items accordingly.

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES

NON-GAAP RECONCILIATIONS (continued)

(In thousands) (Unaudited)

Reconciliation of Free Cash Flow from Continuing Operations

Year Ended

December 31,

2017 [1]

2016

Net cash used in operating activities from continuing operations

$

(25,410)

$

(26,251)

Less: net cash capital expenditures [2]

1,737

6,870

Free Cash Flow

$

(23,673)

$

(19,381)

[1]

For illustrative purposes, the Company has combined the Successor and Predecessor periods to derive combined results for the year ended December 31, 2017.

[2]

Purchases of property, plant and equipment, net of proceeds received from sales of property, plant and equipment

Year-Over-Year Revenue Growth by Price, Activity and Acquisition

Three Months Ended

Year Ended

December 31, 2017

December 31, 2017 [1]

Total Revenue Growth

$

10,648

29.8

%

$

23,895

15.7

%

Breakdown of Total Revenue Growth:

Price

3,646

10.2

5,892

3.9

Activity

7,002

19.6

18,003

11.8

Acquisition

—

—

—

—

$

10,648

29.8

%

$

23,895

15.7

%

[1]

For illustrative purposes, the Company has combined the Successor and Predecessor periods to derive combined results for the year ended December 31, 2017.

For illustrative purposes, the Company has combined the Successor and Predecessor periods to derive combined results for the year ended December 31, 2017.

NUVERRA ENVIRONMENTAL SOLUTIONS, INC. AND SUBSIDIARIES

SUPPLEMENTAL COMPANY AND INDUSTRY DATA

(Unaudited)

Company Assets and Utilization by Revenue Source

Year Ended

December 31, 2017

Water Trucks:

Count (approximate)

550

% Utilized [1]

52.0%

Salt Water Disposal Wells:

Count

48

% Utilized [2]

36.0%

Haynesville Pipeline:

% Utilized [2] [3]

46% - 89%

[1]

Trucking utilization assumes a five day work-week and running twelve hours per day.

[2]

Salt Water Disposal Well and Pipeline utilization is calculated based on functional capacity rather than permitted capacity. Functional capacity reflects any factors limiting volume such as pressure limits, pump or tank capacity, etc. and can potentially be increased with additional capital investment.

[3]

The range of utilization for the Haynesville Pipeline represents the high and low for the year.